Pakistan's power sector is heavily
dependent on thermal generation. The corporatize entities of WAPDA have an
aggregate installed capacity of about 5,000MW, KESC has 1,756MW and IPPs have
collective capacity of about 6,000MW. Natural gas and furnace oil remain the
main fuels because the country has failed in exploiting its coal reserves.

It is often said that Pakistan's power
generation sector is inefficient but hardly any effort has been made to find out
the reasons for its poor performance. According to sector experts the key
factors responsible for this inefficiency are 1) running of power plants which
have outlived their lives; 2) smaller power plants consuming higher fuels and 3)
highly inefficient combustion system. Among the thermal power plants, combined
cycle technology is considered more efficient but it is the least deployed
technology in the country.

Out of WAPDA's 5,000MW capacity,
Muzaffar Garh, Guddu and Jamshoro constitute about 4,000MW. Similarly KESC's Bin
Qasim plant has 1,260MW out of a total of 1,756MW capacity. Out of sixteen IPPs
having an aggregate capacity of 6,000MW, two plants namely and Hubco and Kapco
contribute 3,000MW. All other plants are of relatively smaller capacity where
the fuel efficiency is very poor.

In an attempt to improve profitability
of electric utilities the government has encouraged them to switchover from
burning of furnace oil to natural gas. The government has also persistently
increased electricity tariff to minimize losses of these companies. However,
both the incentives have failed in improving balance sheet of these companies.
It is true that the thermal power plants are inefficient but the real cause of
poor financial condition of electric utilities is huge transmission and
distribution losses.

In recent years, growth in Pakistan's
thermal power generation has come primarily from the IPPs having substantial
foreign investment. The two largest IPPs in Pakistan are Kapco (1,600MW) and
Hubco (1,300MW), both of which supply power to WAPDA. Kapco was privatized in
1996 and International Power of UK holds 36% stake in equity. The Pakistani
government decided that the majority of thermal plants in the country would run
on fuel oil, which also produces considerable amounts of pollution.

In the past Pakistan was generating
bulk of its electricity, up to 60% from hydro electric projects but now the
country meets bulk of its electricity demand from thermal power plants having an
aggregate capacity close to 13,000MW. The cost of electricity generated at
thermal power plants is up to ten times more expensive compared to hydel power
plants.

One ought to know the reasons for
increase in thermal generation capacity, despite it being very expensive. The
reasons include from inability of WAPDA to secure funding for hydel projects to
political controversy, last dam was completed in 1976 and since then no other
mega dam has been constructed. Ideally three mega dam should have been
constructed during this period to meet the growing demand of electricity.

Another reason for the growing
dependence on thermal power plants, particularly IPPs was the shift in the GoP
policy dictated by international financial institutions (IFIs).

These institutions refused to lend
money to public sector entities posting huge losses and asked the GoP to allow
creation of power generation companies by the private sector. To facilitate this
transition the IFIs also promised to finance private sector projects.

One can say that IFIs did not extend
much support to Pakistan as only Hubco has been financed under this policy and
most the other units are too small to be given the status of IPPs, at the best
these can be called captive power plants.

The other serious problem is that
emphasis remained on imported furnace oil. The adverse impact of this policy was
most obvious in 2008 when crude oil prices touched the highest of US$147/barrel.
Not only that cost of generation became unbearable but oil imports eroded
country's foreign exchange reserves sharply and significantly.

Lack of private sector interest in
developing hydel projects and failure in exploiting coal potential has also
added to oil import bill of the country. On top of this inability in
establishing nuclear power plants has also resulted in excessive dependence on
oil and gas based thermal power plants.

Instead of complaining about the
attitude of IFIs, the policy planners must learn to live with the new realities.
If there was restriction on public sector utilities to add new capacity, the
scenario has changed for KESC, at least. The electricity demand in its
franchised area exceeds 5,000MW, if one adds all those units having captive
power plants, as against a dependable capacity of 1,200MW. It is true that the
new management is adding capacity but this is still too little compared with
total demand.

The four generation companies
(previously part of WAPDA's Power Wing) should be listed on local stock
exchanges and at least 10% of their shares should be offered to general public
for their ultimate privatization. Mean time proceeds from sale of shares should
be used to finance creation of additional power generation capacities.

Lately, there were deliberations
regarding giving sugar mills status of IPPs. However, the discussions have
failed because the GoP was not willing to offer them the bulk power purchase
tariff being given to other IPPs. The resistance was based on the fact that
sugar mills use baggage as fuel which is dirt cheap compared to furnace oil and
gas. The policy planners completely ignored the fact that the available baggage
is not sufficient to run the power plants of sugar mills through out the year
and they will have to use furnace oil.

Sugar mills presently operating in the
country are capable of delivering up to 3,000MW to the national grid. The added
advantage is that the mills are close to the point of electricity consumption
and will help in containing transmission and distribution (T&D) losses.